Many small business owners assume that cybercriminals only target large corporations—but that’s not the case. In fact, small businesses are frequent targets because they often have fewer cybersecurity measures in place. Unfortunately, recovering from a cyberattack can be costly, and many businesses struggle to bounce back.
According to industry data, 60% of small businesses close within six months of a cyberattack due to the financial strain. From data breaches and ransomware to fraudulent transactions, cyber threats can disrupt operations, lead to expensive legal issues, and erode customer trust.
The good news? Cyber insurance can provide essential financial protection if a breach occurs. But not all policies offer the same level of protection, and choosing the right coverage is key.
This guide will help you:
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Understand the cyber risks small businesses face
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Learn what to look for in a cyber insurance policy
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Discover security measures that reduce risk and insurance costs
With the right combination of insurance coverage and proactive security practices, you can keep your business protected and prepared for the unexpected.
The Cyber Threats Small Businesses Face (And Why Insurance Matters)
Many small businesses assume cybercriminals only go after large corporations, but the truth is they’re often easier targets.
Without the same security resources as big companies, small businesses can unknowingly leave customer credit card details, financial records, personal information, and other sensitive data vulnerable to attack.
A single breach can lead to devastating financial and legal consequences, making cyber insurance a critical safety net.
Common Cyber Threats for Small Businesses
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Phishing Attacks – Cybercriminals trick employees into revealing sensitive information through fraudulent emails, leading to stolen credentials or malware infections.
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Ransomware – Hackers encrypt a company’s files and demand payment for their release, potentially crippling operations.
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Data Breaches – Stolen customer information can result in lawsuits, regulatory fines, and long-term reputational damage.
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Business Email Compromise (BEC) – Scammers pose as company executives or vendors, requesting fraudulent payments or unauthorized wire transfers.
Why Cyber Insurance Is Essential
Even with strong cybersecurity measures in place, no business is completely immune to cyber threats. Cyber insurance helps small businesses recover from an attack by covering financial losses, legal fees, forensic investigations, and business interruptions. Many policies also assist with required customer notifications and credit monitoring after a data breach.
A cyberattack can happen in an instant, but the financial fallout can last for months. Having the right insurance in place provides peace of mind, ensuring your business can recover and move forward without crippling losses.
Cyber Insurance Cost vs. The Cost of a Cyber Attack
Some small business owners hesitate to invest in cyber insurance because of the cost—but when compared to the financial fallout of a cyberattack, the value becomes clear.
Cyber insurance policies typically range from $500 to $10,000 per year, depending on factors like:
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How many employees you have
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Your business’ income
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What industry you’re in
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What cybersecurity measures you have in place.
The cost of not having cyber insurance can be staggering.
If a business falls victim to a ransomware attack, the average ransom demand alone is around $1.5 million, and that doesn’t account for the additional recovery costs such as downtime and lost revenue. You may also have to deal with lawsuits and regulatory fines.
Without cyber insurance, these costs fall entirely on the business, making recovery far more difficult and, in some cases, impossible.
How to Choose the Right Cyber Insurance For Small Business
Cyber insurance isn’t one-size-fits-all. Understanding key coverage types and policy limitations will help you make an informed decision.
First-Party vs. Third-Party Coverage
First-party coverage protects your business directly. It covers expenses like data recovery, business interruption, lost income, and ransom payments after a cyberattack. This ensures your business can recover quickly from financial and operational disruptions.
Third-party coverage protects against claims made by customers, vendors, or other affected parties due to a data breach. For example, if a cyber incident leads to legal action, this coverage can help pay for lawsuits, settlements, regulatory fines, and legal defense costs.
Industry-Specific Considerations
Different types of businesses face unique cyber risks, so coverage should align with industry-specific needs.
A company that handles sensitive client or customer information may require stronger data breach protection to maintain confidentiality and meet compliance requirements. Businesses that process online transactions should have coverage for payment fraud and security failures to protect financial data.
What Cyber Insurance Won’t Cover
Like any policy, cyber insurance has its limits.
It generally won’t cover pre-existing security vulnerabilities that existed before the policy was purchased. If a business fails to update computer systems or ignores known weaknesses, damages related to those issues may not be covered.
Additionally, insurance might not pay for losses caused by negligence, such as failing to implement basic cybersecurity measures like multi-factor authentication.
Choosing the Right Policy for Your Business
A cyber insurance policy is only effective if it aligns with your business’s risks and industry requirements. Reviewing policy exclusions, ensuring compliance with security best practices, and selecting coverage that fits your operations will help provide financial protection and peace of mind in the face of growing cyber threats.
Security Measures to Reduce Risk (and Lower Your Premiums)
Cyber insurance isn’t just about financial protection—it also encourages businesses to take proactive steps to prevent attacks in the first place.
Insurance companies reward businesses that actively reduce cyber risks, often offering better coverage terms or lower premiums for those that follow cybersecurity best practices.
Implementing multi-factor authentication (MFA) is one of the simplest and most effective ways to prevent unauthorized access to sensitive systems. By requiring a second verification step (beyond a password), businesses can significantly reduce the risk of stolen credentials leading to a data breach.
Educating employees through cybersecurity training is another critical safeguard. Many cyberattacks start with phishing emails or social engineering tactics that trick employees into revealing sensitive information. Regular training helps staff recognize threats and avoid common mistakes that could compromise business data.
Keeping software and systems updated is an essential defense against cybercriminals who exploit known vulnerabilities. Applying security patches as soon as they become available prevents hackers from taking advantage of outdated systems.
Using data encryption and secure backups ensures that even if a breach occurs, sensitive information remains protected. Businesses should regularly back up their data in a secure, offsite location, making it easier to recover in the event of an attack.
Deploying firewalls and endpoint protection adds another layer of security by blocking unauthorized access to company networks and protecting devices from malware. Businesses that invest in these safeguards create stronger defenses against cyber threats.
By implementing these security measures, companies not only reduce their risk of an attack but also position themselves for lower insurance costs and better policy terms.
Cyber Insurance Is a Smart Investment
Cyber threats aren’t going away, and small businesses are just as vulnerable—if not more—than large corporations. A single cyberattack can lead to devastating financial losses, legal troubles, and reputational damage, making cyber insurance an essential safeguard for businesses of all sizes.
The best approach to cybersecurity combines the right insurance coverage with proactive security measures. Implementing strong protections reduces the risk of an attack, while having a cyber insurance policy ensures financial support if one occurs.
Compared to the cost of recovering from a cyberattack, investing in cyber insurance is a small price to pay for long-term security and peace of mind.
Need help finding the right coverage for your small business? Contact Darr Schackow today to explore cyber insurance options tailored to your needs.